Gold remains capped by the 200-Day Moving Average (DMA) at $1,797. Strategists at Credit Suisse expect a consolidation phase to emerge from here.
“Gold holds a minor base but remains capped so far by the crucial 200DMA, currently seen at $1,797 and we expect a consolidation to emerge from here.”
“Below support at $1,729 is needed to ease the immediate upward bias in the range, but with a break back below the 55DMA at $1,688 needed to inject fresh downside momentum into the market again for a retest of the YTD low at $1,614.”
“Above the 200DMA at $1,797 is needed to open the door to a more meaningful recovery for a rise toward the $1,877 June high.”
The data published by Automatic Data Processing (ADP) showed on Wednesday that private sector employment in the US rose by 127,000 in November. This reading came in weaker than the market expectation for an increase of 200,000. The publication further revealed that annual pay was up 7.6% on a yearly basis in November.
Assessing the findings of the report, "turning points can be hard to capture in the labor market, but our data suggest that Federal Reserve tightening is having an impact on job creation and pay gains,” said Nela Richardson, chief economist, ADP. "In addition, companies are no longer in hyper-replacement mode. Fewer people are quitting and the post-pandemic recovery is stabilizing.”
The US Dollar Index stays on the back foot following this data and it was last seen losing 0.4% on the day at 106.42.
The USD/CAD pair continues losing ground through the early North American session and retreats further from over a three-week high, around the 1.3645 zone touched the previous day. The downward trajectory drags spot prices back closer to the 1.3500 psychological mark and is sponsored by a combination of factors.
Crude oil prices extend this week's recovery momentum from the YTD low and gain some follow-through traction amid signs of tighter global supply. Furthermore, optimism over a Chinese demand recovery lifts the black liquid to a one-week high, which, in turn, is seen underpinning the commodity-linked Loonie. Apart from this, the emergence of some US Dollar selling exerts some downward pressure on the USD/CAD pair.
The greenback tracks sluggish US Treasury bond yields, weighed down by growing acceptance that the Fed will slow the pace of its policy tightening. In fact, the markets have fully priced in a relatively smaller 50 bps Fed rate hike move in December. This, along with signs of stability in the financial markets, dents demand for the safe-haven buck. The downside for the USD/CAD pair, however, is likely to remain limited.
The likelihood that OPEC+ will leave output unchanged at its upcoming meeting on Sunday could cap the upside for crude oil prices. Moreover, traders might refrain from placing aggressive bearish bets around the USD and prefer to wait for Fed Chair Jerome Powell's speech later during the US session. This, in turn, warrants some caution before positioning for any further depreciating move for the USD/CAD pair.
Ahead of the key event risk, traders will take cues from the US macro releases - the ADP report on private sector employment, Prelim Q3 GDP print and JOLTS Job Openings data. This, along with the US bond yields and the broader risk sentiment, might influence the USD and produce short-term trading opportunities around the USD/CAD pair.
EUR/JPY manages to leave behind two daily declines in a row and briefly breaks above the 144.00 barrier on Wednesday.
In case bulls push harder, the door could open to a potential test of the weekly high at 146.13 (November 23) in the short-term horizon. While above the 4-month support line near 142.00, the near-term outlook for the cross is expected to remain positive.
In the longer run, the cross should keep the bullish view unaltered above the 200-day SMA, today at 138.96.
GBP/USD has regained the 1.2000 level. A break past 1.2075 is needed to open up further gains, economists at Scotiabank report.
“Longer run economic challenges for the UK remain significant but the still relatively weak GBP may be able to ride a little higher on a soft/ softening USD in the near-term.”
“The broader trend remains higher, however, and the Pound retains some decent underlying bull momentum which should mean decent support on weakness to the low/mid 1.19s.”
“Gains through 1.2075 are needed to lift the GBP tone more obviously in the near-term, however, and that may be a stretch today.”
USD/CNY fell yesterday to around 7.16. Nonetheless, economists at Commerzbank believe that the pair could move back higher towards 7.25.
“In a press conference yesterday, Chinese health officials said it will speed up vaccination for the elderly. This was seen as a sign that the authorities will allow for a more flexible approach on the zero-Covid policy and a continued step towards reopening.”
“The health authorities also warned against excessive control measures by local authorities, striking a conciliatory tone towards Covid restrictions even though they did not respond directly to the recent protests. Following the press conference, Zhengzhou lifted lockdowns in main urban areas and instead focused on targeting a long list of buildings under the `high-risk´ category.”
“USD/CNY still has a good chance to rise closer towards 7.25 in the coming weeks or months as the Covid situation remains highly uncertain.”
Wednesday's US economic docket features the release of the ADP report on private-sector employment, due at 12:15 GMT. Estimates point to an addition of 200K private-sector jobs in November, down from 239K in the previous month. The data could drive expectations for the official jobs report, popularly known as NFP scheduled for release on Friday.
Any positive number would reaffirm the robust US labour market and lifts bets for further policy tightening by the Fed. As Yohay Elam, Senior Analyst at FXStreet explains: “The Federal Reserve and markets want to see the labor market cool down after the reopening-driven boom, which caused substantial shortages. There are still two jobs for each vacant worker. While the pace of hiring has slowed in recent months, there is still a long way to go.”
Hence, a stronger-than-expected report could lend some support to the US Dollar and attract fresh selling around the EUR/USD pair. Conversely, any disappointment will add to worries about a deeper economic downturn and weigh on investors' sentiment, which, in turn, should act as a tailwind for the safe-haven buck. That said, the immediate market reaction is more likely to remain limited as the focus remains glued to Fed Chair Jerome Powell's speech later during the US session.
Meanwhile, Eren Sengezer, Editor at FXStreet, offers a brief technical overview of the pair and writes: “EUR/USD is fluctuating below the 20-period Simple Moving Average (SMA) on the four-hour chart but struggling to pull away from the 50-period SMA, reflecting the pair's indecisiveness. Additionally, the Relative Strength Index is flat near 50.”
Eren also outlines important technical levels to trade the EUR/USD pair: “On the upside, 1.0390/1.0400 (20-period SMA, psychological level) aligns as first resistance area. In case the pair clears that hurdle and starts using it as support, it could target 1.0470 (static level) and 1.0500 (psychological level, multi-month high set on Monday).”
“The 100-period SMA and the Fibonacci 23.6% retracement of the latest uptrend form critical support at 1.0300. A four-hour close below that level could attract sellers and open the door for an extended slide toward 1.0200 (Fibonacci 38.2% retracement),” Eren adds further.
• ADP Jobs Preview: Markets set to find more reasons to sell the Dollar, big beat needed to boost it
• EUR/USD Forecast: Euro eyes highly volatile session
• EUR/USD climbs to daily highs near 1.0380, focus remains on data, Powell
The Employment Change released by the Automatic Data Processing, Inc, Inc is a measure of the change in the number of employed people in the US. Generally speaking, a rise in this indicator has positive implications for consumer spending, stimulating economic growth. So a high reading is traditionally seen as positive, or bullish for the USD, while a low reading is seen as negative, or bearish.
EUR/USD holds range after Eurozone data shows inflation slowing in November. Economists at Scotiabank note that the pair is likely to remain resilient after recent price action.
“Slower headline prices might provide ECB policymakers with the grounds for a slowdown in the pace of tightening – to 50bps – in Dec markets seem to be thinking but double-digit prices and stubborn core inflation will still likely worry the hawks. We look for EUR/USD to remain better supported on moderate dips for now.”
“The EUR is managing to hold in a relatively tight range around 1.0350 despite the negative price action seen earlier in the week (big, bearish rejection of the 200-day MA). That is no mean feat and suggests some underlying resilience in the EUR at this point.”
“We spot intraday support at 1.0320, firmer at 1.0240/50. Resistance is 1.0380 and (strong) at 1.0500/10.”
See: ECB to raise interest rates by only 50 bps in December after a decline in Eurozone inflation – Commerzbank
Euroarea flash inflation was 10.0% year-on-year in November, down from 10.6% YoY in October. Data strengthen Commerzbank’s expectation that the ECB will only raise key rates by 50 basis points at its December meeting.
“The inflation rate in the euro area declined much more than expected, from 10.6% in October to 10.0% in November. Whether this means that the inflation rate has passed its peak is uncertain in view of the extreme fluctuations in energy prices.”
“Underlying price inflation remains high. The core inflation rate excluding energy, food, alcohol and tobacco remained at 5.0% in November.”
“Today's data increase the likelihood that the ECB will raise its key interest rates by only 50 bps in December.”
Norges Bank just announced that they will reduce their NOK selling. However, Norges Bank NOK sales are only one factor that will influence the Norwegian Krone. More important are developments in global financial markets, according to economists at Nordea.
“Norges Bank winds down their NOK selling to 1.9bn NOK per day until 16. December from 3.7bn NOK/day in November. This change should be good news for the NOK in the short-term but global financial market developments will be decisive for NOK’s path.”
“We remain in the camp that believes markets are too optimistic on inflation and too pessimistic on economic activity ahead – this is why we are not sure that the worst is over for the NOK yet. Our latest call is for EUR/NOK at 10.60 in 3M and we don’t see a need to make major changes to that forecast after today’s Norges Bank announcement.”
“Next year, we expect the development for the NOK to be better. We see EUR/NOK at 10.20 by mid-2023 and as low as 9.75 before end-2023.”
Canadian Q3 GDP was up more than expected. Details were more downbeat however. Economists at Commerzbank maintain a CAD bearish stance.
“At 2.9% the seasonally adjusted QoQ rise came in well above Bloomberg consensus expectations of 1.5% (both annualised). Looking at the details revealed a fly in the ointment, i.e. gross fixed asset investment and private household consumer spending had fallen.”
“Everything all told the data signals a not unexpected slowing of economic momentum, which was also confirmed by monthly data. As expected, the economy was able to record a small mom rise in September. The statistical agency’s preliminary estimates for October signalled that it stagnates.”
“In view of the weakening economy the market seems to be lowering its rate hike expectations for the Bank of Canada’s December meeting. The market seems to have priced in a rather smaller rate step of 25 bps.”
“We stick to our projections, which see limited potential for a recovery in CAD against USD medium term.”
The EUR/GBP cross continues with its struggle to capitalize on the move beyond the mid-0.8600s and attracts some sellers during the first half of the European session on Wednesday. The intraday downtick picks up pace following the release of softer Eurozone consumer inflation figures and drags spot prices to a fresh daily low, around the 0.8620 region in the last hour.
According to the preliminary report published by Eurostat, the annualized Eurozone Harmonised Index of Consumer Prices (HICP) decelerated to a 10.0% YoY rate in November from 10.6% in the previous month. On a monthly basis, the HICP declined by 0.1% in November, missing estimates for a 1.5% rise. The data might have cooled expectations for more aggressive interest rate hikes by the European Central Bank, which, in turn, undermines the shared currency and exerts some pressure on the EUR/GBP cross.
ECB President Christine Lagarde, however, said on Monday that the region’s inflation has not peaked and it risks turning out even higher than currently expected. This points to a series of interest rate hikes ahead, which should act as a tailwind for the Euro. Furthermore, less hawkish remarks by Bank of England (BoE) Chief Economist Huw Pill could help limit the downside for the EUR/GBP cross.
Speaking at an online event, Pill said inflation is expected to fall rapidly in the 2nd half of 2023 and supply chain problems seem to be improving. Pill also pushed back against market expectations and sees a lower peak in the current tightening cycle. The fundamental backdrop supports prospects for an extension of the EUR/GBP pair's recent bounce from the 0.8575-0.8570 support zone. That said, the lack of any meaningful buying warrants some caution for aggressive bullish traders.
EUR/USD trades below the 200-Day Moving Average. Still, economists at Credit Suisse expect the pair to extend its recovery to the 38.2% retracement of the 2021-2022 fall at 1.0612.
“EUR/USD is undergoing a concerted attempt to remove resistance from its key 200DMA, currently at 1.0380 but we continue to look for a sustained closing break in due course and for further strength to the 38.2% retracement of the entire 2021-2022 downtrend and late June high at 1.0612/15, which we then look to prove tougher resistance. Should strength directly extend though, we see resistance next at 1.0788.”
“Below 1.0223 is needed to mark a minor top to ease the immediate upside bias for a fall back to support at 1.0097/95.”
The single currency regains some balance and lifts EUR/USD to daily highs in the 1.0380/85 band on Wednesday.
After three daily pullbacks in a row, EUR/USD prints decent gains and looks to reclaim the 1.0400 neighbourhood on the back of fresh weakness hurting the greenback.
Indeed, the pair marches on a firm foot amidst a flat performance in US and German yields and rising prudence ahead of the speech by Chief Powell later in the NA session.
An interesting calendar in the euro area saw Germany’s Unemployment Change rise by 17K people and the jobless rate tick higher to 5.6%, both prints for the month of November. Additionally, flash figures now see the headline CPI in the broader euro area rise at an annualized 10.0% in November and 5.0% when it comes to the Core CPI.
Across the Atlantic, Chair Powell will speak on “Economic Outlook, Inflation and the Labor Market” and FOMC Governor L.Cook will also speak on “The Outlook for Monetary Policy and Observations on the Evolving Economy”.
More from the US data space will see MBA Mortgage Applications, the ADP Employment Change report, Goods Trade Balance, another revision of the Q3 GDP Growth Rate, Pending Home Sales and the Fed’s Beige Book.
EUR/USD sees its upside bias renewed on Wednesday in response to the fresh downside pressure in the dollar, while expectations ahead of the speech by Fed’s Powell remain on the rise.
In the meantime, the European currency is expected to closely follow dollar dynamics, the impact of the energy crisis on the region and the Fed-ECB divergence. In addition, markets repricing of a potential pivot in the Fed’s policy remains the exclusive driver of the pair’s price action for the time being.
Back to the euro area, the increasing speculation of a potential recession in the bloc emerges as an important domestic headwind facing the euro in the short-term horizon.
Key events in the euro area this week: Germany Unemployment Rate, Unemployment Change, EMU Flash Inflation Rate (Wednesday) - Germany Retail Sales, ECB General Council Meeting, Germany/EMU Final Manufacturing PMI, EMU Unemployment Rate (Thursday) - ECB Lagarde, Germany Balance of Trade (Friday).
Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the persistent energy crunch on the region’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.
So far, the pair is gaining 0.37% at 1.0367 and faces the next up barrier at 1.0496 (monthly high November 28) ahead of 1.0500 (round level) and finally 1.0614 (weekly high June 27). On the flip side, a breach of 1.0330 (weekly low November 28) would target 1.0222 (weekly low November 21) en route to 1.0037 (100-day SMA).
US Dollar Index closed the first two days of the week in positive territory. Fed Chair Jerome Powell will share his thoughts on the economy and labor market at the Brookings Institute today. Economists at DBS Bank expect Powell to realign markets to the Fed’s rates trajectory.
“Powell will stress that rates will only pause in 2023 and remind markets that the Fed has yet to start an internal debate on where and when rates will peak. Powell should reaffirm the Fed’s intention to lift the 2023 target for rates from the 4.6% pencilled in September in next month’s Summary of Economic Projections.”
“If Powell realigns the market to the Fed’s rate trajectory, the UST 10Y yield should rise above 4% again and pull the USD higher.”
Federal Reserve Chair Jerome Powell’s speech is set to overshadow Eurozone inflation data. In the view of economists at ING, the EUR/USD pair could accelerate its decline on a dip under 1.0300.
“The impact of the inflation story on the EUR/USD has been, predictably, limited. External factors and Dollar dynamics continue to drive the pair's performance, and we see downside risks today given that Fed Chair Powell is scheduled to speak later.”
“A break below 1.0300 could fuel more bearish momentum, bringing EUR/USD back to the 1.0200/1.0250 levels seen earlier this week.”
The annualized Eurozone Harmonised Index of Consumer Prices (HICP) eased sharply to 10.0% in November vs. October’s 10.6%, the latest data published by Eurostat showed on Monday. The market forecast was for a 10.4% print.
The core figures steadied at 5.0% YoY in November when compared to 5.0% expectations and 5.0% recorded in October.
On a monthly basis, the old continent’s HICP unexpectedly dropped 0.1% in November vs. 1.5% expectations and 1.5% previous. The core HICP stood at 0% this month against the 0.6% expected and 0.6% seen in October.
The Euro area figures are reported a trading day after Germany’s annual inflation for November, which rose by 11.3%, meeting estimates following an 11.6% surge seen in October.
The bloc’s HICP figures hold significance, as it helps investors assess the European Central Bank’s (ECB) monetary policy normalization course. The ECB inflation target is 2%.
“Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in November (34.9%, compared with 41.5% in October), followed by food, alcohol & tobacco (13.6%, compared with 13.1% in October), non-energy industrial goods (6.1%, stable compared with October) and services (4.2%, compared with 4.3% in October).”
The shared currency is unfazed by the mixed Eurozone inflation data, as EUR/USD preserves intraday gains near 1.0370. The spot is adding 0.36% so far.
The AUD/USD pair attracts some buying for the second successive day on Wednesday and stick to its gains through the first half of the European session. The pair is currently placed near the top end of its daily trading range, around the 0.6720-0.6725 region, and remains well supported by the emergence of fresh selling around the US Dollar.
The prospects for a less aggressive policy tightening by the Fed and bets for a relatively smaller 50 bps rate hike in December exert some pressure on the US Treasury bond yields. This, along with signs of stability in the financial markets, weighs on the safe-haven greenback and offers support to the risk-sensitive Aussie. The intraday uptick, meanwhile, seems rather unaffected by softer Australian consumer inflation figures and Chinese PMI.
The Australian Bureau of Statistics reported that the domestic Consumer Price Index (CPI) rose 6.9% during the 12 months to October, missing consensus estimates for a reading of 7.4%. This was seen as a hint that inflation might be peaking, which could mean that interest rates will not have to rise as far as expected. Furthermore, official data from China showed that manufacturing and services activity shrank to seven-month lows in November.
The disappointing data, however, was offset by speculation that the Chinese government will scale back its strict anti-COVID policies to prevent more protests. That said, concerns about economic headwinds stemming from a new COVID-19 outbreak in China should keep a lid on any optimism in the markets. This, in turn, might hold back traders from placing bullish bets around the AUD/USD pair ahead of Fed Chair Jerome Powell's scheduled speech.
Investors will look for fresh clues about the future rate-hike path, which will influence the USD and provide some impetus to the AUD/USD pair. In the meantime, traders on Wednesday will take cues from the US economic docket, featuring the release of the ADP report on private-sector employment, the Prelim Q3 GDP report and JOLTS Job Openings data. This, along with the broader risk sentiment, might produce short-term trading opportunities.
In the view of UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, USD/CNH should keep the trade within the 7.100-7.2300 range for the time being.
24-hour view: “We highlighted yesterday that USD is unlikely to advance further and expected it to ‘trade between 7.2000 and 7.2500’. The subsequent outsized selloff came as a surprise as USD plunged to a low of 7.1347 before recovering. The rapid drop appears to be overdone and USD is unlikely to weaken much further. For today, USD is more likely to trade between 7.1300 and 7.2200.”
Next 1-3 weeks: “Our view from yesterday (29 Nov, spot at 7.2350) that “there is room for USD to test major resistance at 7.2800” was invalidated quickly as USD plummeted below our ‘strong support’ level of 7.1750 (low has been 7.1347). The choppy price actions have resulted in a mixed outlook and USD could trade within a broad range of 7.1000/7.2300 for the time being.”
The USD Index (DXY), which tracks the greenback vs. a bundle of its main competitors, comes under pressure and returns to the low-106.00s on Wednesday.
The index now faces some selling pressure and leaves behind three consecutive sessions with gains against the backdrop of the resumption of the appetite for the risk-associated universe.
The so far downtick in the dollar comes in line with the lack of traction in US yields across the curve, which keep unchanged the side-lined theme in place since mid-November.
The greenback, in the meantime, is predicted to remain under scrutiny on Wednesday in light of key data releases due later in the NA session, as well as the speech by Chief Powell on “Economic Outlook, Inflation and the Labor Market”.
Indeed, the US calendar includes the usual MBA Mortgage Applications, the ADP Employment Change report, Goods Trade Balance, another estimate of the Q3 GDP Growth Rate, Pending Home Sales and the Fed’s Beige Book.
In addition, FOMC Governor L.Cook will speak on “The Outlook for Monetary Policy and Observations on the Evolving Economy”.
The dollar loses part of the recent shine and returns to the 106.30 zone amidst prevailing cautiousness ahead of results from key fundamentals and the speech by Fed’s Powell.
While hawkish Fedspeak maintains the Fed’s pivot narrative in the freezer, upcoming results in US fundamentals would likely play a key role in determining the chances of a slower pace of the Fed’s normalization process in the short term.
Key events in the US this week: Mortgage Applications, ADP Employment Change, GDP Growth Rate, Goods Trade Balance, Pending Home Sales, Fed Powell, Fed Beige Book (Wednesday) - PCE, Initial Jobless Claims, Personal Income/Spending, Final Manufacturing PMI, ISM Manufacturing, Construction Spending (Thursday) - Nonfarm Payrolls, Unemployment Rate (Friday).
Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.
Now, the index is retreating 0.34% at 106.47 and the breakdown of 105.47 (200-day SMA) would open the door to 105.32 (weekly low November 28) and finally 104.63 (monthly low August 10). On the other hand, the immediate resistance emerges at 107.99 (weekly high November 21) followed by 109.11 (100-day SMA) and then 110.34 (55-day SMA).
Within the span of four days the Yuan weakened from 7.14 to 7.26, and then rebounded to 7.18. Economists at Credit Suisse revise their USD/CNH forecast range higher to 7.05-7.35 (from 6.90-7.20).
“China risk sentiment continues in ‘roller coaster’ fashion, affirming our prior view that China's reopening is not a straight line.”
“We think trend declines in oil and CNH since mid-November reflect the more sobering reality of a possible global recession. Amidst this backdrop, we revise our USD/CNH forecast range higher to 7.05-7.35 (from 6.90-7.20).”
EUR/USD moves sideways at around 1.0350. The pair could test the 200-Day Moving Average around 1.0380 if Federal Reserve Chairman Jerome Powell tones down his hawkish comments, economists at Société Générale report.
“Euro bulls may have another go to reclaim the 200 DMA if Powell tones down his hawkish comments of the FOMC press conference four weeks ago.”
“Tactics in FX have shifted to selling Dollar rallies since the middle of October and we suspect pockets of buying on a hawkish reprise of the FOMC press conference four weeks ago could be short-lived and insufficient to steer the Dollar back towards the highs.”
“Eurozone flash inflation for November may surprise to the downside for headline after friendlier numbers for Spain and Germany yesterday and will confirm that the peak is probably behind us. However, the sting could be in the tail with core potentially again disappointing. Be prepared for yesterday’s decline in German 10y real rates to reverse if core CPI bucks the forecast of our economists for a fall to 4.8% YoY.”
See – Eurozone HICP Preview: Forecasts from six major banks, inflation may have not peaked yet
Considering the ongoing price action, USD/JPY could face extra weakness in the next few weeks, suggest UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.
24-hour view: “We expected USD to “trade sideways within a range of 138.20/139.30” yesterday. However, USD traded within a wider range than expected (137.86/139.35) before settling at 138.68 (-0.19%). Momentum indicators are “flattish” and we continue to expect USD to trade sideways, expected to be within a range of 138.00/139.40.”
Next 1-3 weeks: “There is not much to add to our update from yesterday (29 Nov, spot at 138.75). As indicated, while further USD weakness is not ruled out, downward momentum has waned and this combined with oversold conditions suggests the chance of USD dropping to the next support at 137.00 is not high. Overall, only a break of 139.60 (no change in ‘strong resistance’ level) would indicate that USD is not weakening further.”
The GBP/USD pair attracts some buying on Tuesday and maintains its bid tone through the first half of the European session. The pair is currently placed near the daily peak, with bulls now looking to build on the momentum beyond the 1.2000 psychological mark.
The US Dollar edges lower amid a softer tone surrounding the US Treasury bond yields and turns out to be a key factor offering some support to the GBP/USD pair. Growing acceptance that the Fed will slow the pace of its policy tightening and deliver a relatively smaller 50 bps rate hike in December act as a headwind for the US bond yields. Apart from this, signs of stability in the financial markets further seem to undermine the safe-haven greenback.
That said, uncertainty over the Chinese government's intention to scale back its strict zero-COVID policies, despite increasing public protests, continues to weigh on investors' sentiments. This, in turn, should lend some support to the buck ahead of Fed Chair Jerome Powell's speech later during the US session. Investors will look for fresh clues about the future rate hike path, which will play a key role in influencing the USD price dynamics.
In the meantime, the less hawkish remarks by Bank of England (BoE) Chief Economist Huw Pill could keep a lid on any further gains for the GBP/USD pair. Speaking at an online event, Pill said inflation is expected to fall rapidly in the 2nd half of 2023 and supply chain problems seem to be improving. Pill also pushed back against market expectations and sees a lower peak in the current tightening cycle. This, in turn, warrants caution for bullish traders.
Traders now look forward to the US economic docket, featuring the ADP report, Prelim Q3 GDP report and JOLTS Job Openings data. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the GBP/USD pair.
Germany’s Unemployment Rate came in slightly higher at 5.6% in November, the latest data published by Destatis showed on Wednesday. The market consensus was for a 5.5% reading.
The Unemployment Change arrived at 17K in the reported period, up from 8K in August and against expectations of 13K.
The EUR/USD pair remains elavated near-daily highs after the data, last seen trading at 1.0370, adding 0.41% on a daily basis.
Open interest in natural gas futures markets rose by more than 2K contracts after two daily drops in a row on Tuesday, according to preliminary readings from CME Group. In the same line, volume went up for the second consecutive day, now by around 9.1K contracts.
Tuesday’s continuation of the weekly upside in natural gas prices was amidst rising open interest and volume, which is indicative that further gains remain in the pipeline in the very near term. Against that, the commodity still faces the next up barrier at the November high at $7.60 per MMBtu (November 23).
Bank of England (BoE) Chief Economist Huw Pill is now making some comments on the central bank’s interest rate outlook.
Base case does not involve rates reaching 5.25%.
Have more to do on rates in the coming meetings.
Policy time lags mean focusing on labor market is key.
UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang noted AUD/USD could extend the 0.6600-0.6760 range in the next weeks.
24-hour view: “We expected ‘further AUD weakness’ yesterday. However, it soared to 0.6749 before dropping back down quickly. The price actions appear to be part of a consolidation phase. In other words, AUD is likely to trade sideways today, expected to be between 0.6635 and 0.6730.”
Next 1-3 weeks: “Yesterday (29 Nov, spot at 0.6655), we highlighted that downward momentum is building and held the view that AUD is likely to trade with a downward bias towards 0.6585. Our view was invalidated quickly as AUD popped above ‘strong resistance’ level of 0.6740 (high of 0.6749) before dropping sharply. The build-up in downward momentum has faded and AUD is likely to consolidate and trade between 0.6600 and 0.6760 for now.”
Bank of England (BoE) Chief Economist Huw Pill said on Wednesday that “inflation is expected to fall rapidly in the second half of 2023.”
“Demand is easing as household incomes are squeezed.”
“UK labor market remains very tight.”
“Wage growth is not consistent with 2% inflation goal.”
“Supply chain problems seem to be improving.”
“Much of the fiscal tightening starts beyond the BoE horizon.”
GBP/USD is unperturbed by these comments, consolidating gains at around 1.1970, up 0.14% on the day.
The next clear catalyst on the agenda is a speech by Fed Chair Powell. Economists at ING believe that Powell will remind the market of the central bank's hawkish determination, supporting the Dollar.
“We would say that Chair Powell has recently shown to be at the more hawkish end of the spectrum and that tonight’s event risk is a positive one for the Dollar.”
“Dollar price action after Chair Powell’s speech should also tell us something about FX positioning. If the Dollar fails to rally on a hawkish speech it may continue to tell us that the market is caught long Dollars at higher levels and that some further consolidation may be due into December.”
“For the time being, we think the macro environment continues to favour the USD and see Powell’s speech, the October PCE price data (Thursday) and November jobs data (Friday) as upside risks to the Dollar.”
In its latest yearly outlook report, economists at Citi Group said that they expect global growth to slow to below 2% in 2023.
“Gas shock likely to push Euro area, UK into recession before the end of 2022.”
“For 2023, Citi sees US GDP growth of 0.7% and China GDP growth of 5.6%.”
“For 2023 Citi sees GDP contracting 0.4% in the Euro area and 1.5% in the UK.”
“Citi sees 2023 US headline inflation at 4.8%; sees the Fed terminal rate between 5.25-5.5%”
The USD/CAD pair comes under some selling pressure on Wednesday and retreats further from over a three-week high, around the 1.3645 region touched the previous day. The intraday downtick drags spot prices below the mid-1.3500s during the early part of the European session and is sponsored by a modest US Dollar downtick.
A combination of factors keeps the USD bulls on the defensive, which, in turn, is seen exerting some downward pressure on the USD/CAD pair. Investors seem convinced that the Fed will slow the pace of its policy tightening and have been pricing in a relatively smaller 50 bps lift-off in December. This is evident from a softer tone around the US Treasury bond yields, which, along with stability in the equity markets, weigh on the safe-haven buck.
The downside for the USD/CAD pair, however, seems cushioned amid a modest intraday downtick in Crude Oil prices, which tends to undermine the commodity-linked Loonie. Worries that fresh COVID-19 curbs in China will dent fuel demand overshadow speculations that OPEC will announce more supply cuts at its meeting on Sunday. This, in turn, fails to assist the black liquid to capitalize on this week's solid recovery move from the YTD low.
Furthermore, traders are likely to refrain from placing aggressive bets and prefer to wait for Fed Chair Jerome Powell's speech later during the US session. In the meantime, the US economic data - the ADP report on private-sector employment, Prelim Q3 GDP report and JOLTS Job Openings - might provide some impetus to the USD/CAD pair. Traders will further take cues from Oil price dynamics to grab short-term opportunities.
This morning, market focus will be on the Euro and inflation data for November. What might be the FX market’s take on the data? Downside surprise could drag EUR/USD down to 1.03, economists at Commerzbank report.
“If the data were to surprise to the downside the rate hike expectations for December might ease, which would provide a dampener for the Euro. A slide towards 1.03 would be possible.”
“If the data comes in above market expectations this is likely to support the hawks on the ECB board who have already been quite vociferous over the past few days and have caused the market to trend more towards a 75bp step again, which would support the Euro.”
“Surprisingly high inflation data from the eurozone combined with a US labour market report (ADP index published today, labour market report on Friday) that might show first signs of a slowing might catapult EUR/USD significantly above 1.04 again.”
See – Eurozone HICP Preview: Forecasts from six major banks, inflation may have not peaked yet
GBP/USD closed below 1.2000 on Tuesday. The pair could challenge the 1.1800 level as Fed Chair Jerome Powell’s speech may support the greenback, economists at ING report.
“Yesterday’s testimony by Bank of England Governor Andrew Bailey did not yield any market-moving headlines. Today we’ll hear from Chief Economist Huw Pill, who recently pushed back against a 75 bps hike and may therefore keep BoE rate expectations in check.”
“Cable to test 1.1800 as Powell’s speech may support the Dollar today.”
Silver edges higher on Wednesday, albeit lacks bullish conviction and remains below the overnight swing high through the early European session. The white metal is currently placed around the $21.30-$21.35 area and so far, has managed to hold above the 200-hour SMA.
From a technical perspective, the overnight goodish intraday rally from static support just below the $21.00 mark favours bullish traders. Furthermore, positive oscillators on hourly/daily charts support prospects for some meaningful intraday upside for the XAG/USD.
That said, any subsequent move up might continue to confront stiff resistance near the $21.60-$21.70 supply zone. Some follow-through buying should allow the XAG/USD to reclaim the $22.00 round-figure mark and retest a five-month high, around the $22.25 zone.
On the flip side, the 200-hour SMA, currently around the $21.15 area, is likely to protect the immediate downside ahead of the $21.00-$20.90 strong support. A convincing break below the latter could negate the positive outlook and shift the bias in favour of bearish traders.
The XAG/USD might then accelerate the downfall to the $20.60-$20.55 area before eventually dropping to challenge the $20.00 psychological mark. The downward trajectory could further get extended towards a strong horizontal resistance breakpoint, around the $19.60 region.
CME Group’s flash data for Crude Oil futures markets noted traders added around 5.4K contracts to their open interest positions on Tuesday, reversing the previous day’s pullback. Volume, instead, reversed the prior build and shrank by around 121.4K contracts.
Prices of the WTI Crude Oil rebounded markedly on Tuesday amidst rising open interest, which opens the door to potential gains in the very near term. Despite the bounce, Oil remains well under pressure and extra losses could now revisit the key $70,00 mark per barrel sooner rather than later.
GBP/USD now faces some near-term consolidation within 1.1850-1.2080, according to UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.
24-hour view: “We highlighted yesterday that the ‘oversold weakness in GBP could extend to 1.1915 before stabilization is likely’. Our expectation did not materialize as GBP rose to 1.2062 before dropping back down to end the day little changed at 1.1953 (-0.04%). Downward momentum appears to be building, albeit tentatively. As long as GBP does not move above 1.2020 (minor resistance is at 1.1990), GBP is likely to trade with a downward bias today. However, any weakness is unlikely to challenge the major support at 1.1850 (there is another support at 1.1915).”
Next 1-3 weeks: “Our update from yesterday (29 Nov, spot at 1.1965) is still valid. As highlighted, the recent buildup in upward momentum has faded. GBP appears to have moved into a consolidation phase and is likely to trade within a range of 1.1850/1.2080. Looking ahead, a clear break of 1.1850 could signal a deeper drop in GBP.”
The US Dollar Index has now dropped around 7.5% from a multi-decade peak in late September. But the US Dollar should benefit from renewed bouts of risk aversion, along with shifting market views on Fed policy, accoding to economists at UBS.
“During 2023, the US rate hike cycle is likely to end, and the US Dollar should weaken when the cycle draws to a close. However, while the Dollar did not benefit from the risk-off mood at the start of this week, a further burst of strength is likely in the coming months.”
“The decline in US inflation may be less smooth than investors appear to be assuming, and setbacks on inflation could revive concerns over the extent of monetary tightening.”
“Downside risks for the global economy could also cause renewed safe-haven flows into the Dollar.”
“We expect the Euro to fall back to 0.96 versus the US Dollar by March, down from 1.04 at present.”
Considering advanced prints from CME Group for gold futures markets, open interest prolonged the decline and shrank by around 3.5K contracts on Tuesday. Volume followed suit and decreased by nearly 117K contracts.
Tuesday’s uptick in gold prices came on the back of shrinking open interest and volume, removing some strength from the continuation of the uptrend in the very near term. That said, there is still scope for further consolidation, while the weekly high at the $1,763 (November 28) emerges as the immediate hurdle.
The USD/JPY pair struggles to capitalize on its modest intraday uptick on Wednesday and faces rejection near the 139.00 mark. Spot prices drop to a fresh daily low during the early European session, though manage to bounce back above mid-138.00s in the last hour.
The US Dollar remains on the defensive amid a modest downtick in the US Treasury bond yields and turns out to be a key factor acting as a headwind for the USD/JPY pair. Despite the recent hawkish remarks by Federal Reserve policymakers, investors seem convinced that the US central bank will slow the pace of its policy tightening. In fact, the markets have fully priced in a relatively smaller 50 bps Fed rate hike in December, which, in turn, is seen exerting pressure on the US bond yields and the greenback.
Apart from this, worries about the worsening COVID-19 situation drive some haven flows towards the Japanese Yen and contributes to capping the USD/JPY pair. The downside, however, remains cushioned amid a more dovish stance adopted by the Bank of Japan (BoJ), which continues to undermine the JPY. In fact, BoJ Governor Haruhiko Kuroda said earlier this month that the central bank will stick to its monetary easing to support the economy and achieve the 2% inflation target in a stable fashion. In contrast, the Fed is widely expected to continue to raise borrowing costs to combat stubbornly high inflation.
Hence, the market focus will remain glued to Fed Chair Jerome Powell's scheduled speech, which will be scrutinized for clues about future rate hikes. This will play a key role in influencing the USD price dynamics and provide some meaningful impetus to the USD/JPY pair ahead of the key US jobs data (NFP) on Friday. In the meantime, traders on Wednesday will take cues from the release of the US ADP report, Prelim US Q3 GDP report and JOLTS Job Openings data. This, along with the US bond yields and the broader risk sentiment, should allow traders to grab short-term opportunities around the major.
EUR/GBP picks up bids to reverse the previous day’s losses around 0.8650 during the initial European session on Wednesday.
In doing so, the cross-currency pair extends Friday’s rebound from the lowest levels since September while poking the neckline of a short-term inverse head-and-shoulders (H&S) bullish chart formation.
It’s worth observing that the upward-sloping RSI (14), not overbought, joins the bullish MACD signals to suggest a clear break of the 0.8660 hurdle.
Following that, the 200-SMA level of 0.8685 could probe the advances toward the theoretical target surrounding the monthly high near 0.8830.
On the contrary, pullback moves remain elusive unless staying beyond the latest swing low of 0.8607.
Even so, the lows marked during late October and in the last week, around 0.8570, appear a tough nut to crack for the EUR/GBP bears.
In a case where the pair remains weak past 0.8570, September’s bottom near 0.8565 may act as a buffer as sellers aim for the August 19 peak of 0.8511.
Overall, EUR/GBP is likely to remain firmer and can extend the latest recovery as the inverse H&S formation joins upbeat oscillators, namely the RSI and MACD.
Trend: Further upside expected
In the opinion of UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang, EUR/USD is now expected to trade between 1.0260 and 1.0430 in the next weeks.
24-hour view: “Yesterday, we held the view that EUR ‘could drop to 1.0300’. However, EUR traded between 1.0318 and 1.0394 before closing slightly lower at 1.0327 (-0.10%). We continue to see downside risk for EUR even though the lackluster downward momentum suggests EUR is unlikely to challenge the major support at 1.0260. Resistance is at 1.0360, followed by 1.0390.”
Next 1-3 weeks: “There is no change in our view from yesterday (29 Nov, spot at 1.0345). As highlighted, the recent upward momentum has more or less dissipated. For the time being, EUR is likely to trade between 1.0260 and 1.0430. Looking ahead, if EUR breaks clearly below 1.0260, it could lead to a deeper drop.”
Gold price is looking to build on Tuesday’s recovery gains above $1,750. Federal Reserve Chair Jerome Powell’s speech is set to hog the limelight. XAU/USD could yield a triangle breakout if Powell backs a dovish pivot, FXStreet’s Dhwani Mehta reports.
“Gold is on the verge of yielding a symmetrical triangle breakout on the four-hour chart. XAU/USD needs a four-hour candle stick close above the falling trendline resistance at $1,759 to confirm the upside break. If Federal Reserve Chair Jerome Powell backs the dovish pivot, Gold bulls could see the much-needed boost.”
“A fresh upswing toward the $1,770 round figure cannot be ruled out. The next upside target is envisioned at the multi-month highs at $1,787.”
“On the flip side, there is strong support around the $1,750 level, where the 21, 50 and 100-Simple Moving Averages (SMA) converge. A breach of the latter will expose the rising trendline support at $1,745. A sustained move below that support could validate a downside break from the symmetrical triangle, opening floors for deeper declines toward the $1,730 round figure.”
FX option expiries for Nov 30 NY cut at 10:00 Eastern Time, via DTCC, can be found below.
- EUR/USD: EUR amounts
- GBP/USD: GBP amounts
- USD/JPY: USD amounts
- USD/CHF: USD amounts
- AUD/USD: AUD amounts
- USD/CAD: USD amounts
Here is what you need to know on Wednesday, November 30:
Markets stay relatively quiet on the last trading day of November as investors move to the sidelines while awaiting key data releases. After having closed the first two days of the week in positive territory, US Dollar Index fluctuates in a tight range near 106.50 and the US stock index futures trade virtually unchanged on the day. Eurostat will release the Harmonised Index of Consumer Prices (HICP) data for November and the ADP will publish the private sector employment report for the US. Third-quarter US Gross Domestic Product (GDP) growth (second estimate) and the Federal Reserve's Beige Book will also be looked upon for fresh impetus. Most importantly, FOMC Chairman Jerome Powell will speak for the last time before the Fed goes into a two-week blackout period on Saturday.
Earlier in the day, the data from China showed that the NBS Manufacturing PMI declined to 48 in November from 49.2 in October and the Non-Manufacturing PMI dropped to 46.7 from 48.7. These prints revealed that the business activity continued to contract at an accelerating pace. On Tuesday, China's National Health Commission announced that they will strengthen vaccinations for the elderly and officials said that Guangdong province will allow close contacts of Covid cases to quarantine at home. Investors are having a difficult time figuring out whether China will move away from its zero-Covid policy. Reflecting the indecisiveness, the Shanghai Composite Index was last seen losing 0.15% on the day and Hong Kong's Hang Seng Index was up 0.3%.
The Wall Street Journal and Reuters both reported on Tuesday that OPEC+ was likely to maintain its current output strategy when the group meets on December 4. The barrel of West Texas Intermediate (WTI) gained more than 3% on Tuesday before going into a consolidation phase near $79 early Wednesday. Rising crude oil prices, however, failed to help the Canadian Dollar find demand.
USD/CAD reached its highest level in nearly four weeks above 1.3600 on Tuesday after Statistics Canada reported that the real GDP expanded at an annual rate of 2.9% in the third quarter, missing the market expectation of 3.5% by a wide margin. The pair was last seen moving sideways slightly below 1.3600.
USD/JPY is having a difficult time making a decisive move in either direction and continuing to fluctuate below 139.00 mid-week. The data from Japan revealed that Industrial Production decreased by 2.6% on a monthly basis in October following September's 1.7% decline.
EUR/USD closed modestly lower after having met resistance near 1.0400 on Tuesday. The pair moves sideways at around 1.0350 in the early European morning.
Eurozone Inflation Preview: EUR/USD fate hinges on confirmation of peak inflation.
GBP/USD turned south during the American trading hours on Tuesday and closed the day below 1.2000. While testifying before the Lords Economic Affairs Committee, Bank of Governor Andrew Bailey acknowledged that the UK labour market has turned out to be much more constrained than they thought.
Gold price gathered bullish momentum and climbed toward $1,760 on Tuesday on renewed optimism about China further easing restrictions. Rising US Treasury bond yields, however, caused XAU/USD to erase a portion of its daily gains. The pair holds its ground early Wednesday and posts small daily gains slightly above $1,750.
Bitcoin gathered bullish momentum during the Asian trading hours and climbed above $1,700 before retreating below that level into the European session. Ethereum gained more than 4% and managed to extend its rally toward $1,300 early Wednesday. ETH/USD was last seen rising 4.5% on the day at $1,270.
NZD/USD follows the other Antipodeans to cheer the US Dollar weakness while refreshing intraday high near 0.6235 during the initial hours of Wednesday’s European trading. In doing so, the Kiwi pair pays little heed to the downbeat statistics at home and in China while benefitting from the market’s cautious optimism surrounding Covid conditions.
New Zealand’s Building Permits slumped seasonally adjusted 10.7% MoM in October versus a 2.4% expected increase and 3.6% prior growth. Also, China’s officials NBS Manufacturing PMI dropped to 48.0 in November versus 49.2 market forecasts and 49.0 prior whereas the Non-Manufacturing PMI declined to 46.7 from 48.7 prior and 51.7 anticipated.
On the positive side, a second consecutive daily fall in China’s covid numbers from an all-time high backed the nation’s optimism over tackling the pandemic woes, which in turn favored NZD/USD bulls due to New Zealand’s trading ties with China.
Elsewhere, US Dollar Index (DXY) snap a four-day uptrend as it drops to 106.55, down 0.25% intraday at the latest. The Greenback’s gauge versus the six major currencies traces downbeat US 10-Year Treasury bond yields, down two basis points to 3.72%, to print the latest losses. The DXY’s latest losses could also be linked to the softer US data as the Conference Board (CB) Consumer Confidence Index dropped to 100.2 in November versus 102.2 prior (revised down from 102.5).
Against this backdrop, S&P 500 Futures print mild gains even as Wall Street closed mixed while the Asia-Pacific stocks grind higher.
Moving on, NZD/USD traders should pay attention to the US Federal Reserve (Fed) Chairman Jerome Powell’s first speech since the November meeting as the policymaker is likely to defend the central bank’s rate hike trajectory even if the easy lift stays on the table. Also important to watch will be an early signal for Friday’s United States Nonfarm Payrolls (NFP), namely the ADP Employment Change for November, as well as the second readings of the US Gross Domestic Product (GDP) for the third quarter (Q3).
It’s worth mentioning that the Reserve Bank of New Zealand’s (RBNZ) hawkish bias defends the NZD/USD bulls as the policymakers turn down the need of easing rate hikes by citing inflation fears.
Unless rising back beyond the previous support line from November 10, around 0.6280 by the press time, NZD/USD sellers remain hopeful of revisiting the 21-DMA support near 0.6080.
West Texas Intermediate (WTI), futures on NYMEX, is displaying back and forth below the critical resistance of $80.00 in the early European session. The oil prices have been sidelined by the market participants as investors are awaiting the speech from Federal Reserve (Fed) chair Jerome Powell for fresh impetus.
The black gold has turned sideways after a stellar responsive buying action near $74.00 witnessed on Monday. The recent rally and bullish projections for oil prices bank upon significant pressure on the US Dollar ahead of Fed Powell’s speech. Investors are keen to know whether the Fed is firmly considering the option of a deceleration in the interest rate hike pace after a slowdown in October’s inflation.
Meanwhile, a significant plunge in oil stockpiles figured by the United States American Petroleum Institute (API) for the week ending November 25 has also strengthened oil prices. The oil inventories have dropped by 7.85 million barrels. This is the third consecutive drawdown in oil inventories reported by the API, which has infused fresh blood in the oil bulls. However, investors would wait for the official oil inventory report by the Energy Information Administration (EIA) for meaningful cues.
Meanwhile, headlines from Russia that the nation won’t provide oil under price cap in any case, cited by the country’s Deputy Prime Minister Alexander Novak, have bolstered the case of supply worries.
Also, expectations for deepening supply cuts by the OPEC+ in its meeting in December are keeping reins in oil bulls. The oil cartel announced that the promise of a two million barrels per day production cut will extend to the end of CY2023. Considering the recent weakness in oil prices, the oil mafia could accelerate production cuts further.
EUR/USD returns to the buyer’s radar while picking up bids near 1.0350 during early Wednesday morning in Europe. That said, the major currency pair dropped during the last three consecutive days before bouncing off 1.0319 late Tuesday.
The pair’s latest recovery, however, remains inside a three-week-old trading range between 1.0225 and 1.0480. Even so, the 1.0400 round figure appears to lure intraday buyers of late.
It’s worth noting that the bearish MACD signals and convergence of the previous support line from November 03, as well as the stated range’s upper end, near 1.0480, challenges EUR/USD pair’s latest upside.
In a case where the EUR/USD bulls manage to keep the reins past 1.0480, tops marked in late June surrounding 1.0615 should gain the market’s attention.
Alternatively, the 100-SMA level of 1.0300 restricts the immediate downside of the pair ahead of the 1.0225 range support.
Following that, the 200-SMA and the mid-November swing low, respectively near 1.0090 and 0.9935 could probe the EUR/USD bears before directing them to the monthly low of 0.9730.
Trend: Limited upside expected
GBP/USD has sensed a decent buying interest after testing Tuesday’s low of around 1.1940 in the Asian session. The Cable is looking to extend its recovery towards the psychological resistance of 1.2000 as the risk appetite theme has waned now. China’s COVID protest-inspired volatility is fading away as Chinese marshals have restricted the general public at their shelters.
The US Dollar Index (DXY) has refreshed its day’s low at 105.70 as an improvement in investors’ risk appetite has trimmed safe-haven’s appeal. The US Dollar has lost its traction ahead of the speech from Federal Reserve (Fed) chair Jerome Powell. S&P500 futures have turned green after a weak start in early Tokyo as investors are returning to the risk-sensitive assets.
The 10-year US Treasury yields have dropped below 3.73% after hitting a high of 3.75% as investors are expecting a ‘less-hawkish’ stance on interest rate guidance by Fed chair Jerome Powell.
The street is expecting that a good October inflation report could compel Fed chair Jerome Powell to sound ‘less-hawkish’ on interest rate guidance for December monetary policy meeting. The headline United States Consumer Price Index (CPI) has slipped to 7.7% from a recent high of 9.1%. Therefore, the Federal Reserve (Fed) could look for an option of decelerating the current pace of the interest rate hike as it might support assessing the performance of efforts yet made by policymakers and reducing financial risks.
As the inflation rate is extremely far from the targeted rate of 2%, consideration of a halt in the rate hike regime is not in the picture.
Investors are expecting fireworks in Cable in Wednesday’s New York session as the United States economy will report multiple triggers. Right from the US Automatic Data Processing (ADP) Employment, Gross Domestic Product (GDP), and core Personal Consumption Expenditure (PCE) to Fed’s Beige Book, investors might keep juggling in bullish and bearish positions.
According to the estimates, the annualized GDP and core PCE for the third quarter are expected to remain stable at 2.6% and 4.5% respectively. A slowdown in both catalysts would cement a downside shift in the rate hike extent for December’s interest rate decision.
On the labor market front, the consensus says an addition of 200k jobs in November vs. the prior release of 239k.
Meanwhile, Fed’s Beige Book will provide the regional status of consumer spending, employment, and the extent of economic activities.
The inflation rate in the United Kingdom has not displayed signs of a meaningful slowdown yet, therefore, the Bank of England (BOE) cannot halt its policy-tightening process. Analysts at JP Morgan believe that the Bank of England will raise the bank rate to 4.25% by the first quarter of next year. They further added that the UK economy will contract by 0.6% in CY2023 due to tighter monetary and fiscal policy and economic damage from the pandemic and Brexit.
On Tuesday, Bank of England Governor Andrew Bailey testified at the Lords Economic Affairs Committee, citing that "There has been no discussion with the government on the pace and timing of BoE asset sales." He believes that the “UK labor market has turned out to be much more constrained than we thought, different to other countries."
GBP/USD has witnessed a responsive buying action after testing the horizontal support plotted from November 17 high of around 1.1940. The 200-period Exponential Moving Average (EMA) at 1.1960 has acted as major support for the Cable. The Pound bulls have also pushed the Cable above the 20-EMA at 1.1980, which indicates that the short-term trend is bullish now.
Meanwhile, the Relative Strength Index (RSI) (14) has pushed itself into the 40.00-60.00 range, which indicates a consolidation ahead.
Gold price (XAU/USD) picks up bids to refresh intraday top near $1,755 heading into Wednesday’s European session. In doing so, the precious metal prices cheer the broad US Dollar weakness, as well as cautious optimism in the market. However, anxiety ahead of the all-important speech from Fed Chair Jerome Powell seems to test the bulls.
US Dollar Index (DXY) snap a four-day uptrend as it drops to 106.55, down 0.25% intraday at the latest. The Greenback’s gauge versus the six major currencies traces downbeat US 10-Year Treasury bond yields, down two basis points to 3.72%, to print the latest losses.
The DXY’s latest losses could also be linked to the softer US data as the Conference Board (CB) Consumer Confidence Index dropped to 100.2 in November versus 102.2 prior (revised down from 102.5).
Furthermore, China’s multiple measures to ease the strict lockdown in the key areas after witnessing a retreat in the daily Covid infections from a record high seemed to favor the mild risk-on mood. Even so, the world’s second-largest economy kept its Zero-Covid policy intact. Bloomberg reported the reopening of some city buildings in the greater Zhengzhou region, the home of a key iPhone plant. Earlier on Tuesday, the news broke that China's Guangdong province will allow the close contacts of Covid cases to quarantine at home.
While portraying the mood, S&P 500 Futures print mild gains even as Wall Street closed mixed while the Asia-Pacific stocks grind higher.
Looking forward, hawkish hopes from Fed’s Powell challenge Gold buyers but a surprise dovish statement might not hesitate to propel the commodity prices beyond the short-term key hurdles. Other than Powell, an early signal for Friday’s United States Nonfarm Payrolls (NFP), namely the ADP Employment Change for November, as well as the second readings of the US Gross Domestic Product (GDP) for the third quarter (Q3), will also be crucial to watch for clear directions.
Gold price extends bounce off a convergence of the 10-DMA and a three-week-old ascending support line, around $1,747-49 by the press time, to keep buyers hopeful.
However, a downward-sloping trend line from mid-November and bearish MACD signals tease XAU/USD sellers unless the quote crosses the $1,760 hurdle.
Even so, a five-month-old descending resistance line, close to $1,780 by the press time, challenges the Gold buyers.
Alternatively, the XAU/USD’s pullback remains elusive beyond $1,747, a break of which could drag the metal towards the highs marked in September and October, respectively near $1,735 and $1,729.
Overall, the Gold price remains on the bear’s radar unless staying beyond $1,780.
Trend: Limited upside expected
AUD/USD fails to justify downbeat Australia inflation data, as well as disappointing activity numbers from China, as traders brace for the Federal Reserve (Fed) Chairman Jerome Powell’s speech early Wednesday. That said, the Aussie pair pokes intraday high near 0.9705 during the two-day uptrend.
It’s worth noting that the cautious optimism, mainly linked to China’s Covid conditions and easing of the virus-led activity restrictions, also seemed to have underpinned the AUD/USD pair’s upside momentum of late.
That said, Australia’s Monthly Consumer Price Index (CPI) dropped below 7.4% market forecasts and 7.3% prior to 6.9% while justifying the Reserve Bank of Australia’s (RBA) latest dovish. Following the data, Reuters mentioned that the markets are still wagering the RBA will raise its cash rate by another 25 basis points to 3.1% at its December policy meeting next week. “Yet they also trimmed the expected peak for interest rates to around 3.6%, from 3.7% before the CPI release and as much as 4.20% last month,” added the news.
On the other hand, a second consecutive daily fall in China’s covid numbers from an all-time high backed the nation’s optimism over tackling the pandemic woes. Even so, Beijing reported disappointing activity data for November, which in turn suggests more easing from the People’s Bank of China (PBOC) and indirectly signaled more demand for Australia, due to the Aussie-Sino ties.
Looking forward, AUD/USD bulls are likely to witness hardships amid hawkish hopes from Fed Chair Jerome Powell, even if chatters surrounding easy hikes may persist. Also important to watch will be an early signal for Friday’s United States Nonfarm Payrolls (NFP), namely the ADP Employment Change for November, as well as the second readings of the US Gross Domestic Product (GDP) for the third quarter (Q3).
AUD/USD remains bearish unless crossing the previous support line from November 10 and a fortnight-long resistance line, close to 0.6770 by the press time.
Perry Warjiyo, Bank Indonesia (BI) Governor, said on Wednesday that the Rupiah is expected to strengthen in 2023 supported by good economic fundamentals.
Coordination between fiscal, monetary authorities need to be continued.
Global supply chain is still hampered, global investor perspective still negative.
We need to be aware of risk of global econ slowdown, high interest rates, high energy and food prices.
Amid global turmoil, we need to strengthen synergy and coordination.
2023 GDP growth seen at 4.5% to 5.3%.
2024 GDP growth seen at 4.7% to 5.5%.
Inflation remain high but will return to 2%-4% target in 2023, and 1.5%-3.5% in 2024.
2023 and 2024 loan growth seen at 10%-12%.
2023 energy subsidies will allow c.bank to raise interest rates in a measured way.
C.bank, financial authorities independence will be maintained.
Bank Indonesia monetary policy to remain pro-stability.
Other c.bank tools will be directed to support economic growth.
We will optimize interest rates, exchange rate, liquidity policies.
BI to ensure core inflation steered toward target range by first-half 2023.
BI will remain in the markets to conduct triple intervention.
BI to ensure bond yield remain attractive while avoiding excessive rise.
BI's macroprudential policy will remain loose.
BI launches white paper digital rupiah today.
2022 C/A balance seen at +0.4% to +1.2% of GDP, 2023 C/A balance seen at +0.4% to -0.4% of GDP.
Despite upbeat comments from the central bank Governor, USD/IDR is trading listlessly at around 15,740, almost unchanged on the day.
USD/CHF takes offers to refresh the intraday low near 0.9520 during early Wednesday in Europe. In doing so, the Swiss Franc (CHF) pair prints the first daily loss in five while reversing from the highest levels in one week.
Even so, the resistance-turned-support line from November 11, close to 0.9520, restricts the USD/CHF pair’s immediate downside.
Also keeping the pair buyers hopeful are the stronger bullish signals from the Moving Average Convergence and Divergence (MACD) indicator.
It should be noted that the 0.9500 threshold and a fortnight-old ascending support line, near 0.9405, will precede the monthly low of .9356 to challenge the USD/CHF bears afterward.
Meanwhile, recovery moves could aim for the 0.9600 round figure but a convergence of the 50-day and 100-day Exponential Moving Average (EMA) around 0.9700-05 appears a tough nut to crack for the USD/CHF bulls.
In a case where the pair successfully crosses the 0.9705 hurdle, the late October lows near 0.9840 will be in focus.
Overall, USD/CHF is expected to stay in recovery mode unless refreshing the monthly low. However, the upside momentum appears limited.
USD/CAD grinds lower as it prints mild losses while refreshing intraday bottom near 1.3565 during early Wednesday morning in Europe. In doing so, the Loonie pair traces firmer prices of Canada’s main export item WTI crude oil while cheering a pullback in the US Dollar ahead of the key data/events.
WTI crude oil prints a three-day uptrend as buyers keep the reins around $79.00 amid hopes of more demand from China, after recently easing Covid woes. Also likely to have favored the black gold could be the chatters surrounding a supply cut from the OPEC and its allies including Russia, known collectively as OPEC+, when they meet on December 05. “OPEC+ is likely to keep oil output policy unchanged at a meeting on Sunday, five OPEC+ sources said, although two sources said an additional production cut was also likely to be considered, to support prices,” said Reuters.
Elsewhere, global markets turn cautiously optimistic as China announced multiple measures to ease the strict lockdown in the key areas after witnessing a retreat in the daily Covid infections from a record high. Even so, the world’s second-largest economy kept its Zero-Covid policy intact. Bloomberg reported the reopening of some city buildings in the greater Zhengzhou region, the home of a key iPhone plant. Earlier on Tuesday, the news broke that China's Guangdong province will allow the close contacts of Covid cases to quarantine at home.
Also likely to have favored the USD/CAD bears is the downbeat prints of the US Conference Board (CB) Consumer Confidence Index dropped to 100.2 in November versus 102.2 prior (revised down from 102.5).
Additionally, upbeat prints of Canada’s quarterly Gross Domestic Product (GDP) for the third quarter (Q3), to 0.7% versus 0.4% expected and 0.8% prior, also favor the USD/CAD bears.
It should, however, be noted that the hawkish hopes from Federal Reserve (Fed) Chairman Jerome Powell, during his first public appearance since November Federal Open Market Committee (FOMC) meeting, seem to challenge the USD/CAD bears. Also likely to have probed the pair’s moves is the existence of an early signal for Friday’s United States Nonfarm Payrolls (NFP), namely the ADP Employment Change for November, as well as the second readings of the US Q3 GDP.
The USD/CAD pair’s sustained trading beyond the previous key resistances and the 100-DMA level surrounding 1.3285 joins the bullish MACD signals to keep the buyers hopeful.
Also read: USD/CAD Price Analysis: Buyers poke key hurdle to the north around 1.3600
The EUR/JPY pair has extended its recovery above the immediate hurdle of 143.50 in the Asian session. Earlier, the cross resurfaced firmly after building a cushion marginally above 143.00. The pair could turn sideways ahead as investors are awaiting the release of the Eurozone Harmonized Index of Consumer Prices (HICP).
Meanwhile, an improvement in investors’ risk appetite has also supported the shared currency bulls. The cross is following the sentiment displayed by the EUR/USD pair. Going forward, the asset could test the round-level hurdle of 144.00.
According to the estimates, the headline HICP will decline to 10.4% vs. the prior release of 10.6%. While the core HICP data that excludes oil and food prices is seen unchanged at 5%. This might bring a sigh of relief to the European Central Bank (ECB). Analysts are having mixed views on inflation guidance citing volatile energy prices.
Analysts at Nomura believe that headline HICP inflation will accelerate by 0.2 pips to 10.8% YoY, whereas core HICP inflation to accelerate by 0.1 pips to 5.1% YoY. While other analysts see a decline in inflationary pressures but still believe that the risk of the inflation rate ending up higher in December is intact as food prices are continuously advancing and expectations of a marginal decline in headline HICP banks upon the recent drop in energy prices.
This won’t ease the odds of a higher rate hike announcement by the European Central Bank (ECB) ahead.
Meanwhile, the Japanese yen bulls have surrendered their optimism as risk aversion loses traction. In Tokyo chatters over the unwinding of the Bank of Japan (BOJ)’s monetary easing are not picking up further. Earlier, a Reuters poll claimed that 90% of economists are expecting a wind-up of BOJ’s easing policy from the second half of CY2023.
Asian markets struggle for clear directions during early Wednesday as traders await crucial catalysts scheduled for publishing. Also likely to have challenged the region’s share traders are mixed signals from China, as well as downbeat data from Australia, New Zealand and Japan.
While portraying the mood, the MSCI’s index of Asia-Pacific shares outside Japan rises 2.6% but Japan’s Nikkei 225 drops half a percent to snap the optimism by the press time. The reason for the downbeat mood in Tokyo could be linked to Japan’s disappointment with October’s Industrial Production.
On the other hand, stocks in China grind higher as Beijing announced multiple measures to ease the strict lockdown in the key areas after witnessing a retreat in the daily Covid infections from a record high. Even so, the world’s second-largest economy kept its Zero-Covid policy intact. Bloomberg reported the reopening of some city buildings in the greater Zhengzhou region, the home of a key iPhone plant. Earlier on Tuesday, the news broke that China's Guangdong province will allow the close contacts of Covid cases to quarantine at home.
However, downbeat China activity data for November challenged the positive mood in the dragon nation. That said, China’s officials NBS Manufacturing PMI dropped to 48.0 versus 49.2 expected and 49.0 prior. Further details mention that the Non-Manufacturing PMI also slumped to 46.7 from 48.7 prior and 51.7 expected.
Elsewhere, Australia’s ASX 200 rises 0.20% as disappointing inflation numbers raised expectations of easy rate hikes from the Reserve Bank of Australia (RBA). Australia's Monthly Consumer Price Index (CPI) dropped to 6.9% YoY versus 7.4% expected and 7.3% prior.
On the same line, New Zealand’s NZX 50 rallies near 1.0% after downbeat New Zealand Building Permits for October, -10.7% MoM versus 2.4% expected and 3.6% prior.
On a broader front, inactive S&P 500 Futures and sticky US Treasury bond yields challenge the market sentiment. It’s worth noting that Wall Street closed mixed as softer US data jostled with hawkish Fedspeak.
Looking forward, equities are likely to remain sluggish amid a cautious mood ahead of the first speech from Federal Reserve (Fed) Chairman Jerome Powell since the November meeting. Should the policymaker meet hawkish expectations, the market sentiment may sour.
Also read: Forex Today: All eyes on Federal Reserve's Powell, Aussie CPI and China PMIs
USD/INR aptly portrays the pre-data anxiety around 81.60 during early Wednesday as traders await the key catalysts from India and the US. Also likely to have challenged the USD/INR moves could be the recently mixed signals from China.
Downbeat China activity numbers jostled with the hopes of easing Covid woes to challenge traders in Asia. That said, China’s officials NBS Manufacturing PMI dropped to 48.0 versus 49.2 expected and 49.0 prior. Further details mention that the Non-Manufacturing PMI also slumped to 46.7 from 48.7 prior and 51.7 expected.
Elsewhere, Beijing announced multiple measures to ease the strict lockdown in the key areas after witnessing a retreat in the daily Covid infections from a record high. Even so, the world’s second-largest economy kept its Zero-Covid policy intact. Bloomberg reported the reopening of some city buildings in the greater Zhengzhou region, the home of a key iPhone plant. Earlier on Tuesday, the news broke that China's Guangdong province will allow the close contacts of Covid cases to quarantine at home.
On a different page, firmer oil prices and robust foreign inflows also seem to restrict the USD/INR moves.
WTI crude oil defends the latest rebound from the yearly low while printing mild gains around $79.00 by the press time. India’s reliance on energy imports and a record Current Account Deficit (CAD) makes the Indian Rupee (INR) susceptible to Oil price moves.
Alternatively, Reuters cited an optimistic growth outlook to mark the heavy foreign fund inflow and favor the USD/INR bears. “India's robust growth outlook has prompted a revival in foreigners returning to domestic equities. So far this month, overseas investors have bought more than $4 billion of Indian shares,” stated the news.
Also, the market’s sluggish moves, as signaled by the inactive S&P 500 Futures and mixed moves in Asia, not to forget sticky US Treasury bond yields, challenge USD/INR momentum traders.
Moving on, India’s Gross Domestic Product (GDP) for the July-September quarter is likely to be the key for the USD/INR pair traders ahead of Fed Chair Jerome Powell’s speech. Reuters poll suggests that the economy likely returned to a more normal 6.2% annual growth rate in July-September after double-digit expansion in the previous quarter.
On the other hand, hawkish expectations from Fed Chair Powell appear as a hurdle for the quote. Additionally important is an early signal for Friday’s United States Nonfarm Payrolls (NFP), namely the ADP Employment Change for November, as well as the second readings of the United States Gross Domestic Product (GDP) for the third quarter (Q3). Forecasts suggest that the US ADP Employment Change for November is expected to arrive at 200K versus 239K prior while the US Q3 GDP could confirm the flash forecasts of 2.6% Annualized growth.
Gradual unwinding long positions from the 50-DMA hurdle, currently around 81.90, favor USD/INR bears.
The EUR/USD pair has witnessed recovery after dropping to near 1.0320 in the Asian session. The major currency pair has managed to safeguard the round-level cushion of 1.0300 for now and is expected to remain sideways ahead of the Eurozone Harmonized Index of Consumer Prices (HICP) figures.
The risk aversion theme has lost its grip and the US Dollar Index (DXY) has turned volatile. The upside in the USD Index seems capped as the Federal Reserve (Fed) chair Jerome Powell, in his speech on Wednesday, is expected to sound ‘less-hawkish’ on interest rate guidance. S&P500 futures are displaying a lackluster performance as investors are expected to decide on pouring funds back into equities post-Fed Powell’s speech.
Meanwhile, 10-year US Treasury yields have witnessed mild selling pressure after hitting a high of 3.75%.
In addition to the Fed chair’s speech, investors will also focus on US Gross Domestic Product (GDP) data. As per the projections, the United States economy has grown at a rate of 2.6%, similar to its prior release. Expansion or stability in the GDP rates could accelerate troubles for the Fed. The US central bank has worked on slowing down the inflation rate in the entire year. Stable GDP rates express that retail demand is solid and inflation is not expected to decline.
On the Eurozone front, investors are focusing on the release of the inflation figures. As per the consensus, the headline HICP will decline to 10.4% vs. the prior release of 10.6%. While the core HICP data that excludes oil and food prices is seen unchanged at 5%.
Gold price (XAU/USD) is aiming to shift its business above $1,750.00 after a meaningful recovery near $1,748.00 in the Tokyo session. The precious metal has sensed buying interest as the US Dollar index (DXY) has turned volatile ahead of the speech from Federal Reserve (Fed) chair Jerome Powell. This time, the speech from Fed Chair carries a significant impact as investors will get cues about a deceleration in the interest rate hike pace.
The USD Index has picked some bids around 106.60 after a downside move and is expected to remain on tenterhooks as Wednesday’s New York session will release crucial economic catalysts apart from Fed Powell’s speech. S&P500 futures have recovered some losses recorded in early Asia. The 10-year US Treasury yields are still rock solid above 3.74%.
The major catalyst that will have a significant impact on Gold price is the US Automatic Data Processing (ADP) Employment data. According to the preliminary estimates, the US economy has added 200k jobs in November vs. 239k added in October. The labor data is facing the consequences of rising interest rates, which has forced firms to halt the recruitment process due to rising expectations of a slowdown ahead.
Gold price is displaying a sideways performance in a range of $1,740-1,760 on an hourly scale ahead of the release of key economic catalysts and Fed Powell’s speech. The 20-period Exponential Moving Average (EMA) at $1,751.00 is overlapping with the asset, which indicates a consolidation ahead.
Meanwhile, the Relative Strength Index (RSI) (14) is continuously oscillating in a 40.00-60.00 range, which states that investors have been sidelined ahead of key events.
Analysts at JP Morgan believe that the Bank of England (BoE) will raise the bank rate to 4.25% by the first quarter of next year.
“Fiscal policy is set to tighten with a lag, and monetary tightening "will take longer to bite than in the past.”
“Expect a contraction in the UK's economy in 2023, forecasts UK GDP -0.6% next year (compared with +4.3% in 2022) due to tighter monetary and fiscal policy and economic damage from the pandemic and Brexit.“
USD/JPY prints mild losses around 138.70 during the three-day losing streak amid early Wednesday. Even so, the quote bounces off intraday low of late to test the bears.
The yen pair’s latest losses could be linked to the failure to cross the key resistance line stretched from early November, around 139.20 by the press time. Also likely to favor the USD/JPY sellers are the bearish MACD signals and the downbeat RSI.
It’s worth noting that the quote’s further declines appear limited as the RSI (14) line is near the oversold territory. As a result, a descending support line from late September, near 136.90, appears crucial for USD/JPY bears to watch
In a case where the Yen pair remains bearish past 136.90, the odds of witnessing a south-run towards the early August top surrounding 135.60 and then to August month’s low near 130.40, can’t be ruled out.
Alternatively, a clear upside break of the aforementioned resistance line isn’t an open welcome for the USD/JPY buyers as a convergence of the 100-DMA and the 50% Fibonacci retracement level of the pair’s August-October upside will challenge the further advances near 141.25.
To sum up, USD/JPY is likely to decline further but the room towards the south is limited.
Trend: Further downside expected
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Citing a former senior State Administration of Foreign Exchange official Guan Tao, Shanghai Securities News reports, “China needs to ensure a strong domestic economy, improve financial supervision, and reform institutional opening-up to promote the long-term international use of the yuan.”
“The yuan is increasing its standing as a major international currency due to its market-oriented exchange rate and recent resilient performance.”
“The use of the yuan in global foreign exchange reserves is set to surpass sterling and the yen due to relaxed restrictions on outbound investment in the yuan bond market.”
GBP/USD cheers upbeat inflation signals, as well as the market’s cautious optimism while snapping a three-day downtrend near 1.2000 during early Wednesday morning. Even so, the Cable pair traders remain cautious ahead of the key data/events.
As per the latest data from the British Retail Consortium (BRC), the cost of fresh food sold in British shops increased in November at the fastest annual rate since records began in 2005, to 14.3% per Reuters.
Other details from the news mentioned, “Other food item prices surged at the fastest pace on record to 12.4% in November, up from 11.6% the month before. Overall shop price inflation rose to 7.4%, a record for the index which started 17 years ago, and up from 6.6% in October.”
On Tuesday, Bank of England Governor Andrew Bailey said that the UK labor market has turned out to be much more constrained than we thought. Before him, BOE Policymaker Catherine Mann said, “Medium-term inflation expectations are very important for my assessment of where bank rate should go.”
Other than the likely aggressive BOE, easing Covid fears from China also seemed to have underpinned the GBP/USD pair’s latest rebound. That said, the dragon nation registered the second consecutive fall in daily infections, to 37,828 at the latest. Previously, China announced multiple measures to ease the strict lockdown in the key areas after witnessing a retreat in the daily Covid infections from a record high. Even so, the world’s second-largest economy kept its Zero-Covid policy intact. Bloomberg reported the reopening of some city buildings in the greater Zhengzhou region, the home of a key iPhone plant. Earlier on Tuesday, the news broke that China's Guangdong province will allow the close contacts of Covid cases to quarantine at home.
On the same line could be the softer US Conference Board (CB) Consumer Confidence Index for November which dropped to 100.2 versus 102.2 prior (revised down from 102.5).
It should, however, be noted that the hawkish hopes from Fed Chairman Jerome Powell, mainly due to the latest hawkish rhetoric among the policymakers seem to test the GBP/USD pair buyers. Additionally challenging the pair buyers could be the fears of a nationwide strike of the UK government employees and fears of recession due to the latest changes in the fiscal policies.
Other than the Fed’s Powell, an early signal for Friday’s United States Nonfarm Payrolls (NFP), namely the ADP Employment Change for November, as well as the second readings of the United States Gross Domestic Product (GDP) for the third quarter (Q3) will also be important for the GBP/USD pair traders to watch.
Despite the latest rebound, the support-turned-resistance line from November 09 and the 200-DMA, respectively near 1.2130 and 1.2160, challenge the GBP/USD bulls.
NZD/USD month end could realise month-end rebalancing that implies NZD buying ahead of the Federal Reserve's Chairman, Jerome Powell, speaking later today. The following illustrates the technical outlook in a top-down analysis:
The 4-hour chart is showing signs of deceleration on the bid, with the price now on the back side of the micro trendlines. However, the lower time frames are bullish in Asia as follows:
If the support in the Fibonacci scale holds, then there will be prospects of a bullish continuation to find liquidity on the other side of the range as illustrated above. 0.6250 is eyed on a break of the resistance near 0.6225.
Citing delegates from OPEC and its allies (OPEC+), the Wall Street Journal (WSJ) reported late Tuesday that the alliance is likely to decide to keep oil output levels flat at their meeting Sunday, December 4.
The OPEC+ remains worried about the fresh COVID-19 lockdown measures in China and Russian oil sanctions.
“OPEC+ is leaning toward approving the same production levels agreed to in October, when they greenlighted a 2 million barrels a day output cut.”
“Sunday’s meeting was planned to take place in person at OPEC’s headquarters in Vienna, but it will now be held remotely to avoid negative media scrutiny.”
At the time of writing, WTI is 0.24% higher on the day, trading at $78.76. Broad-based US Dollar weakness is providing some support to the USD-sensitive black gold.
AUD/USD picks up bids to refresh intraday top near the 0.6700 threshold during early Wednesday, extending the previous day’s recovery. In doing so, the Aussie pair ignores downbeat prints of Australia’s monthly inflation numbers and disappointing activity data from Canberra’s biggest customer, Beijing.
Australia's Monthly Consumer Price Index (CPI) dropped to 6.9% YoY versus 7.4% expected and 7.3% prior. The inflation numbers defend the Reserve Bank of Australia’s (RBA) dovish bias and should have weighed the prices. On the same line, China’s officials NBS Manufacturing PMI dropped to 48.0 versus 49.2 expected and 49.0 prior. Further details mention that the Non-Manufacturing PMI also slumped to 46.7 from 48.7 prior and 51.7 expected.
It should be noted, however, that the 100-SMA defends AUD/USD bulls around 0.6660 amid sluggish oscillators.
Following that, a three-week-old horizontal support zone near 0.6590-85 and the 200-SMA support close to 0.6515 will be crucial for the pair sellers to watch.
On the contrary, recovery remains elusive below the 0.6770 resistance confluence including the previous support line from November 10 and a fortnight-long resistance line.
Even so, the monthly high of around 0.6800 acts as an extra filter to the north for the AUD/USD bulls to watch.
Overall, AUD/USD stays on the bear’s radar despite the latest rebound.
Trend: Limited recovery expected
USD/CNH licks its wounds near 7.1590, picking up bids of late, as it pares the biggest daily loss in a fortnight during early Wednesday. The pair’s latest moves justify downbeat prints of China’s official activity data for November amid a cautious mood ahead of the crucial catalysts scheduled to release from the United States.
That said, China’s officials NBS Manufacturing PMI dropped to 48.0 versus 49.2 expected and 49.0 prior. Further details mention that the Non-Manufacturing PMI also slumped to 46.7 from 48.7 prior and 51.7 expected.
It should be noted that the news surrounding the gradual easing of the strict Covid-led lockdowns in China failed to favor the offshore Chinese Yuan (CNH). China announced multiple measures to ease the strict lockdown in the key areas after witnessing a retreat in the daily Covid infections from a record high. Even so, the world’s second-largest economy kept its Zero-Covid policy intact. Bloomberg reported the reopening of some city buildings in the greater Zhengzhou region, the home of a key iPhone plant. Earlier on Tuesday, the news broke that China's Guangdong province will allow the close contacts of Covid cases to quarantine at home.
Against this backdrop, the S&P 500 Futures remains indecisive after a mixed closing of Wall Street whereas the US 10-year Treasury bond yields ended Tuesday on a firmer footing, up six basis points (bps) to 3.748%, down one bps to 3.73% at the latest.
The market’s cautious mood could be linked to the anxiety ahead of Fed Chairman Jerome Powell’s first public appearance since November Federal Open Market Committee (FOMC) meeting amid hawkish hopes. Also important is the US ADP Employment Change for November, expected at 200K versus 239K prior, as well as the second reading of the US Gross Domestic Product (GDP) for the third quarter (Q3), expected to confirm 2.6% Annualized growth.
A daily closing below a two-week-old ascending trend line keeps the USD/CNH bears hopeful of revisiting the monthly low surrounding 7.0200.
The monthly manufacturing and Non-manufacturing PMIs released by the China Federation of Logistics and Purchasing (CFLP) on the last day of every month have been released as follows:
The Aussie remains around 0.6685, but there is a bearish biuas below 0.6700.
However, the price is on the backside of the trend so there could be a phase of distribution to play out over the coming days between a wide 0.6800/ 0.6600 range for the parameters hold. While there is liquidity on either side of the range, the downside bias is in play while below 0.6700 resistance:
The official PMI is released before the Caixin PMI, which makes it even more of a leading indicator, highlighting the health of the manufacturing sector, considered as the backbone of the Chinese economy. The data is of high relevance for the financial markets throughout several asset classes, given China’s influence on the global economy.
In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 7.1769 vs. the last close of 7.1575.
China maintains strict control of the yuan’s rate on the mainland.
The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.
Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day's closing level and quotations taken from the inter-bank dealer.
AUD/JPY seesaws near 92.75, printing mild losses during early Wednesday after downbeat Australia inflation data. Even so, the cross-currency pair remains sidelined as traders remain cautious ahead of the key data/events.
Australia's Monthly Consumer Price Index (CPI) dropped to 6.9% YoY versus 7.4% expected and 7.3% prior. The inflation numbers defend the Reserve Bank of Australia’s (RBA) dovish bias and should have weighed on the AUD/JPY prices.
However, anxiety ahead of Federal Reserve (Fed) Chairman Jerome Powell’s first public appearance since the November Federal Open Market Committee (FOMC) meeting seems to challenge the traders, as well as a slew of data from China, Europe and the US.
Amid these plays, the S&P 500 Futures print mild losses after a mixed closing of Wall Street whereas the US 10-year Treasury bond yields ended Tuesday on a firmer footing, up six basis points (bps) to 3.748%, remain sidelined near the same at the latest.
Moving on, China’s official activity data for November could offer immediate directions but the major attention will be given to Powell amid hawkish concerns, which in turn could weigh on the market’s risk appetite and the AUD/JPY prices.
AUD/JPY remains indecisive while making rounds to the 200-DMA during early Wednesday, struggling to justify the downbeat signals from Australia amid cautious market sentiment.
Even so, the cross-currency pair’s sustained trading below the previous support line from October 13 and the 50-DMA, around 93.70 by the press time, keeps the AUD/JPY bears hopeful. Also favoring the sellers are the bearish MACD signals and downbeat RSI, not oversold.
That said, the latest low surrounding 92.15 and the 92.00 round figure could restrict the AUD/JPY pair’s immediate downside ahead of the previous monthly bottom of 90.84.
Alternatively, a convergence of the previous support line and the 50-DMA near 93.70 holds the key for the pair buyer’s entry. Additionally challenging the AUD/JPY bulls is the descending resistance line from October 21, close to 94.10 at the latest.
Overall, AUD/JPY remains on the bear’s radar despite the latest data from Australia and China.
Trend: Further downside expected
The AUD/NZD pair has displayed a wild swing in a 1.0764-1.0787 range in the Asian session as the Australian Bureau of Statistics has reported lower-than-projected Australian inflation data. October’s Consumer Price Index (CPI) report has shown a decline in the inflation rate to 6.9% while market participants were expecting an increment in the inflation rate to 7.4%.
A decline in inflation is expected to provide a sigh of relief to Reserve Bank of Australia (RBA) policymakers. The Australian central bank was extremely worried as inflationary pressures were not showing any sign of exhaustion earlier. The street was expecting that RBA Governor Philip Lowe would be forced to return to 50 basis points (bps) rate hike structure to curtain galloping inflation.
As the inflation rate has slowed down below 7.0%, the RBA might continue its current rate hike pace of 25 bps to keep economic prospects alive alongwith the mission of bringing price stability.
Meanwhile, investors are keeping an eye on development over public protests in China. Anti-Covid lockdown protest by the general public in a state of anger and frustration has resulted in weaker economic projections. This has kept the antipodeans in the grip of bears this week.
Apart from that, Thursday’s Caixin Manufacturing PMI data will remain crucial. The economic data is seen lower at 48.9 than the prior release of 49.2.
On the New Zealand front, the number of Building Permits has shown a negative growth of 10.7% vs. expansion of 2.4% as expected and the prior release of 3.6%. Accelerating interest rates by the Reserve Bank of New Zealand (RBNZ) might be responsible for a decline in the economic catalyst.
EUR/USD picks up bids to refresh intraday high near 1.0340 while snapping a three-day downtrend during early Wednesday. In doing so, the major currency pair prints mild gains, up 0.15% intraday by the press time, amid the upbeat signals from the options market and cautious mood ahead of crucial data events.
Among them, Federal Reserve (Fed) Chairman Jerome Powell’s first public appearance since the November Federal Open Market Committee (FOMC) meeting and Eurozone inflation for November, per the Harmonized Index of Consumer Prices (HICP) indicator, will be important to watch for clear directions.
Also read: EUR/USD closing in most bullish month in 12 years ahead of Eurozone inflation, Federal Reserve talk
That said, the one-month risk reversal (RR) for the EUR/USD pair, the ratio between call and put premiums, braces for the biggest weekly print in three by flashing 0.0025 at the latest. In doing so, the weekly RR rises for the second consecutive week. The daily RR, however, probes the pair buyers as it prints a -0.040 figure.
It should be observed that the recently softer inflation data from Germany join the hawkish hopes from Fed Chair Powell and looming recession concerns over the Eurozone to keep the EUR/USD bears hopeful.
The AUD/USD pair has picked bids around 0 .6670 as the Australian Bureau of Statistics has reported a decline in the monthly Consumer Price Index (CPI). The Australian CPI has landed at 6.9% lower than the expectations of 7.4% and the prior release of 7.3%.
A decline in Australian inflation is expected not to force the Reserve Bank of Australia (RBA) to ditch its current 25 basis points (bps) rate hike culture. Earlier, the street was expecting that RBA Governor Philip Lowe would return to a 50 bps rate hike structure on expectations of an increment in the price rise index.
Apart from that, China’s unrest against Covid curbs announced by authorities to curtail the epidemic has kept the Australian Dollar volatile this week. People are in a state of anger and frustration due to prolonged restrictions on the movement of men, materials, and machines under the zero-Covid policy.
As per the latest developments, the Chinese city of Zhengzhou, home to Apple Inc.’s largest manufacturing site in China, said that it was lifting a lockdown of its main urban areas put in place five days ago as Covid cases climbed. The headline could infuse optimism in the Australian Dollar, being a leading trading partner of China.
Meanwhile, the US Dollar Index (DXY) has shifted its auction profile above the critical hurdle of 106.80 in the Asian session. The risk aversion theme is intact and may remain solid as investors have turned nervous ahead of the speech from Federal Reserve (Fed) chair Jerome Powell. This will provide meaningful cues about the likely monetary policy action in December.
Apart from that, the release of other key catalysts such as US Automatic Data Processing (ADP) Employment, Gross Domestic Product (GDP), core Personal Consumption Expenditure (PCE), and the Fed’s Beige Book will be keenly watched.
The new monthly Consumer Price Index report for Australia has been released.
Its coverage is only partial, so there is less weight given to the data in markets that await the quarterly report as the benchmark for the Reserve Bank of Australia
The data arrived as follows:
Aussie CPI (YoY) Oct: 6.9% vs. estimated 7.6% and previous 7.3%.
Westpac looks for quarterly inflation to peak at 8.1% in Q4.
The Aussie has stuck to being flat for the day around 0.6685.
However, the price is on the backside of the trend so there could be a phase of distribution to play out over the coming days between a wide 0.6800/ 0.6600 range for the parameters hold. While there is liquidity on either side of the range, the downside bias is in play while below 0.6700 resistance:
Meanwhile, the National Australia Bank updated on their latest outlook for the Reserve Bank of Australia:
We expect the (monthly CPI) data to further solidify the need for the RBA to continue hiking in the near term and see the RBA hiking rates by 25 bps in December, February, and March to 3.60%.
Thereafter the key for the RBA outlook is whether wages growth remains consistent with a return of inflation to target as we assume – Governor Lowe has previously cited WPI wages growth of around 3½-4.0% as being consistent assuming a 1% productivity assumption.
In the coming months, the market services components of CPI will be watched closely given its sensitivity to wage outcomes and the tendency for services inflation to be stickier than for goods.
Silver price (XAG/USD) fades the previous day’s recovery moves from a one-week low, taking rounds to $21.25-30 during Wednesday’s Asian session.
In doing so, the bright metal stays inside a fortnight-long symmetrical triangle while defending the previous day’s upside break of the 200-HMA.
It’s worth noting, however, that the bearish Moving Average Convergence and Divergence (MACD) signals and the downward-sloping Relative Strength Index (RSI) placed at 14, not oversold, seem to tease the bears.
A clear break of the 200-HMA support near $21.15 becomes necessary to tease the XAG/USD bears. Even so, the $21.00 round figures and lower line of the aforementioned triangle, around $20.95 by the press time, could challenge the bullion’s further downside.
In a case where the Silver price drops below $20.95, the November 07 low near $20.40 appears crucial for sellers as a break which could quickly direct the quote towards the monthly low of $18.83.
Meanwhile, recovery moves not only need to cross the stated triangle’s upper line, close to $21.50 at the latest, but also need validation from the $21.70 to convince the buyers.
Following that, a run-up towards the monthly top surrounding $22.25 can’t be ruled out.
Trend: Further downside expected
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USD/JPY remains sidelined around 138.80, despite picking up bids to snap two-day uptrend during early Wednesday morning in Tokyo. In doing so, the Yen pair portrays the market’s cautious mood ahead of the key catalysts while tracking sluggish US Treasury bond yields.
While portraying the mood, S&P 500 Futures print mild losses after a mixed closing of Wall Street whereas the US 10-year Treasury bond yields ended Tuesday on a firmer footing, up six basis points (bps) to 3.748%, remain sidelined near the same at the latest. That said, the two-year US Treasury bond yields stop the previous day’s run-up near 4.48%.
Talking about the market’s positives, China announced multiple measures to ease the strict lockdown in the key areas after witnessing a retreat in the daily Covid infections from a record high. Even so, the world’s second-largest economy kept its Zero-Covid policy intact. Bloomberg reported the reopening of some city buildings in the greater Zhengzhou region, the home of a key iPhone plant. Earlier on Tuesday, the news broke that China's Guangdong province will allow the close contacts of Covid cases to quarantine at home.
On the same line could be the softer US data as Conference Board (CB) Consumer Confidence Index dropped to 100.2 in November versus 102.2 prior (revised down from 102.5).
However, hawkish comments supporting the US Federal Reserve’s steadily high-interest rates, even if a mild cut in the aggression is expected, seemed to have kept the US Dollar Index (DXY) on a firmer footing. New York Federal Reserve Bank President John Williams and St. Louis Fed President James "Jim" Bullard were the latest supporters of higher rates.
It should be noted that the looming concerns over the Bank of Japan’s (BOJ) monetary policy tightening in 2023 appeared to have favored the USD/JPY bears of late.
Looking forward, risk catalysts like headlines from China and Fedspeak, as well as chatters surrounding the BOJ, may direct immediate USD/JPY moves. However major attention will be given to Fed Chairman Jerome Powell’s first public appearance since November Federal Open Market Committee (FOMC) meeting amid hawkish hopes. Furthermore, the US ADP Employment Change for November, expected 200K versus 239K prior, will precede the second reading of the US Gross Domestic Product (GDP) for the third quarter (Q3), expected to confirm 2.6% Annualized growth, to populate the economic calendar too.
A three-week-old triangle restricts immediate USD/JPY moves between 139.10 and 137.50 by the press time.
The US Dollar Index (DXY) has shifted its business above the critical hurdle of 106.80 in the Asian session. The USD Index is expected to hit the round-level resistance of 107.00 as the risk-aversion theme is in the spotlight. The risk impulse is extremely cautious ahead of the speech from Federal Reserve (Fed) chair Jerome Powell as he is expected to provide cues about a deceleration in the aggressive interest rate hike pace.
S&P500 remained subdued on Tuesday as investors are expected to make informed decision post the Fed Powell’s speech. Contrary, the 10-year US Treasury yields remained extremely firmer on the belief that the slowdown concept in the rate hike pace is still under observation and yet to be confirmed.
Nervousness in the global markets is highly expected as the speech from Fed chair Jerome Powell will determine the further road to terminal rates. Most likely, the Fed chair is expected to deliver a ‘less-hawkish’ stance on interest rate guidance for December monetary policy meeting as the United States Consumer Price Index (CPI) has already shown meaningful signs of exhaustion. The headline CPI has already slipped to 7.7% from the peak of 9.1%, therefore, Fed policymakers discussed a slowdown in the rate hike pace to assess efforts yet made to contain price growth and to reduce financial risks.
Wednesday’s New York session is expected to display fireworks in almost entire majors and related instruments as the United States economy will report US Automatic Data Processing (ADP) Employment, Gross Domestic Product (GDP), core Personal Consumption Expenditure (PCE), and Fed’s Beige Book.
As per the consensus, the annualized GDP and core PCE for the third quarter are expected to remain stable at 2.6% and 4.5% respectively. A slowdown in both catalysts would cement a downside shift in the rate hike extent for December’s interest rate decision.
On the labor market front, the consensus says an addition of 200k jobs in November vs. the prior release of 239k.
Apart from the economic catalysts, Fed’s Beige Book will provide the regional status of consumer spending, employment, and the extent of economic activities.
Gold prices climbed on Tuesday even as the US Dollar and bond yields rose but were capped as traders get set for the Federal Reserve's chair, Jerome Powell, who will speak on Wednesday. Meanwhile, there is mixed sentiment surrounding the apparent easing of unrest in China over coronavirus curbs. Traders are also apprehensive while awaiting further important data from the US economy on Friday in the form of the Nonfarm Payrolls report.
The Gold price started Wednesday near $1,750, sitting in the middle of Tuesday's range which ended as an inside bar in comparison to Monday's business. Gold is pressured below what could turn out to be a key resistance area of around $1,762. There is a focus on the downside for the day ahead while capped there with eyes on $1,720 as illustrated in the technical analysis at the end of this article. Meanwhile, there are plenty of fundamentals to be aware of for the day ahead and the rest of the week. The clock is now ticking down towards the final weeks of the year and the critical Federal Reserve December interest rate decision.
Federal Reserve chairman, Jerome Powell, is scheduled to speak on Wednesday. The chair is expected to ''reaffirm the Fed’s unwavering commitment to tackling inflation, the need for more measured rate rises taking account of increased two-way economic risks as policy becomes restrictive, and a degree of optimism that the Fed will be able to pull off a soft landing,'' analysts at ANZ Bank explained.
The tight labour market and elevated services inflation will be hot topics which would be expected to elevate the jobs report on Friday to a more urgent degree on Gold trader's radars. While markets welcome the prospect of smaller hikes, a need to reach an appropriately higher terminal rate due to a tight labour market could be a spanner in the works for Gold bugs ahead of the Federal Reserve meeting held on 13 & 14 of December.
''US Nonfarm Payrolls payrolls likely continued to slow gradually but still advanced firmly in November, falling only modestly below its three-month avg of 290k,'' analysts at TD Securities said. ''The Unemployment Rate likely stayed unchanged at 3.7%, while we look for wage growth to have slowed to 0.3% month over month after accelerating to 0.4% in October,'' the analysts added.
Ahead of that, ADP reports a private sector job estimate on Wednesday and is expected at 200k vs. 239k in October. October JOLTS job openings will also be reported Wednesday and is expected at 10.35 mln vs. 10.717 million in September.
China coronavirus protests erupted which has put China's president Xi Jinping and the Chinese Communist Party (CCP) in a bind. Thousands took to the streets in major cities across the nation in recent days, protesting against Covid restrictions.
An exhausted population has been asking how much longer must they endure Xi Jinping's zero-Covid policy. In one of President Xi's biggest political tests yet, the CCP is attempting to negotiate both mounting fury and a deep-rooted fear of Covid, all of which have upended the global economic outlook and added a new element of uncertainty on top of the Ukraine war, an energy crisis and inflation.
With a number of factors that have fundamentally stripped the US Dollar of its recent safe-haven appeal analysts at TD Securities warned that several catalysts could spark a leg lower in Gold as CTAs run out of dry powder on the bid.
''Systematic trend followers are still covering their shorts in gold markets as downside momentum signals subside. This continues to set the stage for a bull trap in precious metals as the resilient price action, buoyed by CTA short covering, attracts new long interest from discretionary money managers. However, the narrative is chasing prices,'' the analysts warned with respect to Gold's recent bullish correction.
Besides any uber-hawkish commentary from Federal Reserve speakers this week or ahead of the December meeting that could trap Gold bulls, the situation in China remains fluid and a probable catalyst for a flight for safety.
''We continue to downplay any hopes of quicker reopening despite conciliatory comments from mainland health officials,'' analysts at Brown Brothers Harriman argued.
A combination of a hawkish twist in Fed sentiment and continued risks of a prolonged reopening in China would be expected to play into the hands of the US Dollar bulls and strip Gold of its safe-haven appeal
The daily chart shows that the Gold price is attempting to make a clean break to the upside having broken the long-term trendline resistance in a harmonic reversion pattern as illustrated above.
However, on closer inspection, the price is struggling on the bid at this juncture, bounded by both resistance and support. There are in-the-money longs below the spot price and that means liquidity for sellers to target in the meantime.
$1,720 will be an important support in this regard because a break of there opens risk all the way down into liquidity patches below $1,700. On the flip side, a break of $1,762 and then $1,790 opens the way for a deeper bullish correction and potentially a longer-term bull trend.
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